Interest rate pause hopes, Hurricane Idalia lifts oil price while Marks and Spencer…

• FTSE 100 opens higher as global indices lift on hopes that US interest rate hikes will be paused.
• Cash flow at China’s largest property developer Country Garden in focus amid worries about real estate sector.
• Oil prices rise as Florida braces for Hurricane Idalia.
• EV ownership jumps in the European Union amid fuel price volatility.
• Official announcement expected for Marks and Spencer’s return to FTSE 100.
• Abrdn and Persimmon set to be relegated while Moonpig should fly into FTSE 250.

Susannah Streeter, head of money and markets, Hargreaves Lansdown: ‘”What appears to be bad news for the US economy is being notched up as good news for equities with a weakening jobs snapshot and slide in consumer confidence lifting indices. Signs of America’s cooling economy  have raised hopes that the pause button will be pushed on punishing interest rate hikes. The more optimistic tone has pushed the FTSE 100 up in early trade, offsetting ongoing concerns about the fragility of China’s economy. The positive vibes are expected to keep reverberating with stock futures pointing to a positive start for Wall Street. A raft of other figures, including estimates of US economic growth in the second quarter, will be picked through today to see if the information backs up expectations that central bank policymakers at the Federal Reserve will leave rates unchanged.  Chair Jerome Powell said last week that another interest rate hike could still be on the table, but it’s all going to depend on the data. Data is king right now in terms of market sentiment and the non-farm payrolls snapshot out on Friday will crown the week. If it points to a fresh slowdown in hirings, we could see another spurt in stock prices.

Tech giants are highly sensitive to interest rate policy given their high valuations are underpinned by huge growth projections, and there appears to be renewed optimism that ambitious earnings forecasts are achievable. Given their huge weight on indices, they are the big market movers, but their dominance overshadows the struggle smaller companies in other industries are experiencing as a slowdown takes effect. Many consumers are reining in spending and focusing on value and essential goods as the high cost-of-living takes its toll, while those more insulated also appear to be continuing the post-pandemic trend of shifting to spending on experiences. Firms are stemming expectations of sales declines by offering discounts to lure in customers, a strategy helping US electronics company Best Buy post a better-than-expected revenue forecast.

China’s embattled property sector is still causing concerns, amid worries the highly indebted state of property giants will spill over into the wider economy. The country’s largest property developer Country Garden is struggling under a mountain of liabilities, which totalled $194bn at the end of last year. Its cash flow is now in sharp focus after it missed interest payments and it’s attempting to reduce loans it owes to  Hong-Kong based creditor, manufacturer Kingboard Holdings, by issuing shares. This is tinkering around the edges of deeper structural problems, and a vicious circle has emerged, with the debt crisis in the property sector making home buyers even more nervous as house prices fall and new construction and investment shrinks, compounding the problems for developers.

Although concerns about demand slowing in China is keeping a ceiling on oil prices, they have edged up as supply concerns come into focus. Hurricane Idalia hurtling towards Florida threatens disruption to output and power generation in the Gulf of Mexico, with power cuts already being felt. At the same time US crude stockpiles slid by more than expected last week, dropping by 11.5 million way higher than the 2.9 million fall expected. Brent crude prices have risen above $85 a barrel, a direction of travel which will be applauded by Saudi Arabia. The Kingdom is super-reliant on crude revenues and had cut production to support prices.

It’s little wonder, given the volatility in the price of fuel motorists have experienced over the past few years, that sales of electric vehicles have surged across the European Union as more motorists decide to take the plunge into the charging technology. Battery electric car registrations jumped 60.6% in July, now accounting for 13.6% of the market. However, overall sales are still down by 22% compared to the same period in 2019. It seems the cost-of-living crisis may still be keeping consumers more cautious about buying four wheels with a big ticket price, while others may be standing on the sidelines for now, waiting to see how rapidly charging infrastructure will be rolled out before going fully electric.

It’s not just any reshuffle, it’s an M&S reshuffle with the high street bellwether set to return to the FTSE 100. The retailer has staged a remarkable turnaround amid the cost-of-living crisis and is set for a place back in the blue chip league. FTSE Russell is set to make the official announcement today, given the M&S share price has surged around 75% year to date. The focus of the M&S brand on both quality and price has been a clear advantage and its stock selection has received renewed loyalty from shoppers. Shrinking its estate, and closing larger stores in town centres, is paying off, with smaller shops in retail parks offering easy to use click and collect services. But there are still challenges ahead, with the longer-term outlook for retail hard to map.

Persimmon is set to be kicked out of the topflight amid fresh data indicating the extent to which the high cost of borrowing is weighing heavily on the housing market. Zoopla figures today show – the number of house and flat sales in the UK this year is set to be the lowest in a decade. Even though Persimmon reiterated full year guidance, investors have been swayed by other industry data, showing sales overall are deteriorating at a rapid click, which is not surprising given that potential home buyers are more anxious about taking on higher monthly payments, which could impact forward sales. Nevertheless, the housing shortages in populous parts of the UK don’t look like being solved any time soon, which should give housebuilders like Persimmon more resilience for the longer term.

Abrdn is set to be ditched from the topflight yet again for the second time in a little over a year. It reported fund outflows of £4.4bn for the first half of 2023 amid challenging economic conditions. Certainly, sky-high inflation and worries about economic growth have been challenging for the asset management sector, and Abrdn’s weaker performance in this environment looks set to propel it out of the big league. The company has shrugged off the potential demotion, remaining confident in its strategy. It has been trying to keep revenue moving in the right direction through acquisitions. It now owns Interactive Investor, which should provide a relatively stable source of assets for the group given its one of the UK’s biggest direct-to-consumer investment platforms.

Moonpig is expected to fly back into the FTSE 250 as demand for its personalised cards has been resilient despite consumers’ stretched budgets. In June the company said it’s on track for full year revenue growth of 5.2%. Concerns about the cost-of-living crisis hitting discretionary spending had kept Moonpig shares penned in, but they’ve had a new lease of life of late. Although its revenue wings were clipped last year after consumers shifted to buying lower cost gifts, it has shown more resilience of late despite the cost-of-living headwinds, with big events like Mother’s Day proving a draw for personalised cards.

The other movers during this reshuffle include Hiscox and Johnson Matthey who set set to will be relegated from the FTSE 100 while Hikma, Diploma, Dechra Pharma are expected to join the blue chip index.’’